Syracuse, NY - Despite widespread concern over National Grid accounting practices, the company’s request for a $400 million electric rate hike will be decided before an independent audit of company finances can be completed, the state’s top regulator told lawmakers Tuesday.

State law requires the Public Service Commission to rule on the utility’s rate hike within 11 months “or they get everything they asked for,” PSC Chairman Garry Brown testified at a hearing of the state Senate’s Energy and Telecommunications Committee.

The PSC will hire an independent auditor to go through National Grid’s books to see if there are other costs wrongly allocated to Upstate customers. But the auditor hasn’t been hired yet, and rate case will be over long before the review is completed, Brown said.

If the audit uncovers “past excesses,” the PSC could require National Grid to refund the money to ratepayers with interest, said Wayne Brindley, deputy director of the PSC office of accounting and finance.

Tom King, the president of National Grid USA, told the committee he was “deeply disappointed” about the inappropriate costs that were included in the rate request. Some of the expenses – including the wine shipment – should never have been reimbursed, much less billed to ratepayers, he said.

“This should never have happened, and we’re doing everything we can to make sure it doesn’t happen again,” King said.

National Grid has hired Liberty Consulting Group, of Quentin, Pa., to audit cost allocations among National Grid’s many companies, which include the former Niagara Mohawk. Liberty is expected to provide a preliminary report in December, and a final report by February, King said.

Those reports will be shared with the PSC, King said.

But Sen. George Maziarz, R-Newfane, chairman of the Senate committee, said it’s important for the PSC to conduct an independent audit.

National Grid has withdrawn more than $4 million from its rate request to cover the questionable expenses. PSC staff accountants have recommended a $26 million reduction instead, to cover a broader array of potential expense overcharges – a deduction that National Grid officials have called “plainly arbitrary.”

King remained adamant that National Grid needs a rate hike. He said much of the equipment on the company’s Upstate electric grid is 50 to 80 years old, and the grid needs significant investment to support a modern economy.

“People and industry will go where the intelligent grid exists,” King said.
PSC staff representatives initially recommended that the PSC lower National Grid’s rates by $14 million, but the staffers revised their proposal as they obtained more information. PSC staff now recommends a $37 million rate hike, compared with National Grid’s request for $403 million.

The controversial expenses are just one area of disagreement. The PSC staff says National Grid should accept a 9 percent profit margin instead of the 11.1 percent sought by the company, a difference of $87 million a year. The staff also want to cut National Grid’s revenues related to employee bonuses, depreciation, storm costs, and austerity measures, among others.

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The state Public Service Commission will conduct public statement hearings next week in Syracuse on National Grid’s proposal for a $400 million electric rate increase. Here's how to participate.

Both Maziarz and Sen. Joseph Griffo, R-Rome, expressed concern about deciding the rate case before the PSC’s independent auditor submits a report.

Saul Rigberg, an attorney for the state Consumer Protection Board, told the committee that the PSC should finish the rate case on schedule because it has already entailed months of work. But Rigberg also accused National Grid of “disturbing and shoddy accounting and expense account practices.”

To safeguard ratepayers, Rigberg said the PSC should designate $50 million to $60 million as “temporary rates” that could be reduced if the PSC audit finds costs were overstated. National Grid proposed a similar mechanism, but with a much smaller number — $10 million.

Brown, the PSC chairman, said it’s clear that the unusual 10-year electric rate plan National Grid received in 2002 did not provide enough opportunities for PSC staff to go through the books.

"I have not found a staff person yet who thinks this would be a good model to go forward with in the future,” Brown said.

When National Grid submitted its rate proposal earlier this year, the utility requested a three-year rate deal. But the PSC is likely to set rates for just one year, said Joseph Lochner, of the PSC accounting office. If that happens, National Grid could file a new request within weeks to seek a rate hike in 2012.

Four of the eleven members of the Senate committee attended the hearing. Besides Maziarz and Griffo, Sens. David Valesky, D-Oneida, and Tom Libous, R-Binghamton, took part.

By the time the fifth witness testified, however, only Maziarz remained.

In an interview after the hearing, King addressed the speculation that National Grid may sell some of its U.S. assets. King said the company is considering a sale of its electric and gas utilities in New Hampshire, but nothing more.

“It’s not for sale,” he said of the U.S. business.

National Grid has been evaluating proposals to outsource much of its information technology work. Workers in Syracuse say that could lead to significant numbers of layoffs.

King said it’s too soon to say whether layoffs are coming, but he said Syracuse is likely to gain more jobs than it loses as the company streamlines operations. An announcement is coming within the next few months, he said.

“I think everyone will be pleasantly surprised,” King said. “We have an opportunity to continue growing our presence within the Syracuse area.”

Stephen D. Cannerelli / The Post-StandardNational Grid U.S. President and CEO Tom King testifies today before the state Senate Energy & Telecommunications Committee in Albany, which is investigating the utility's accounting practices and questionable expenses. Listening to his testimony were Sen. David Valesky, D-Oneida, and Sen. George Maziarz, R-Newfane, the committee chairman.